KUALA LUMPUR: RAM Rating Services Bhd has revised the outlook on the long-term rating of FORMIS RESOURCES BHD []'s RM80 million debt notes from stable to negative on concerns about the group's persistently weak financial performance in recent quarters.
The ratings agency said on Monday, March 28 the revision in the outlook affected the murabahah underwritten notes issuance facility/Islamic medium-term notes facility (2005/2012). The debt notes facility is currently rated BBB1/P2.
Formis' activities are information, communication and TECHNOLOGY [] (ICT) products and services.
'The negative outlook reflects RAM Ratings' concerns on the group's persistently weak financial performance in recent quarters stemming from the longer- and larger-than-anticipated losses of ISS CONSULTING SOLUTIONS BHD [] (ISS),' it said.
To recap, the accounts of ISS had been consolidated following the group's reverse take-over (RTO) of this subsidiary via the disposal of Formis Holdings Bhd's entire equity in Diversified Gateway Bhd (Diversified Gateway) to ISS, in exchange for ISS shares.
Formis' overall performance during the nine-months ended Dec 31, 2010 had been below expectations, with an operating loss and a narrower pre-tax profit. Nevertheless, its pre-tax performance in 1Q Oct FY 2011 was boosted by a RM9.2 million gain on dilution of equity interest in Diversified Gateway. Adjusting for this, the group would have incurred a pre-tax loss.
Although Formis' core businesses have remained relatively stable, ISS's contributions from SAP-related products have been meagre. Furthermore, the group's operating loss had been caused by hefty ISS-related expenses such as administration, professional and consultant fees as well as additional allowances for doubtful debts.
Despite the operating losses, Formis still has a healthy balance sheet and a strong liquidity profile. The group's debt level eased from RM69.52 million as at end-December 2009 to RM59.69 million as at end-December 2010. Backed by its enlarged shareholders' funds (following the RTO of ISS), its gearing ratio improved to 0.25 times while retaining its net-cash position.
'Looking ahead, RAM Ratings expects Formis' performance to remain weak, with ISS likely to stay in the red for another few quarters. Although the latter is focusing on delivery of secured contracts, it has thus far been slow in clinching new jobs,' it said.
The ratings could face downward pressure should Formis' performance deteriorate further, vis-''-vis ISS' inability to procure new contracts and continues to be loss-making. On the other hand, the rating outlook may be revised to stable if Formis is able to improve its operating performance as well as ISS's business prospects.
The ratings agency said on Monday, March 28 the revision in the outlook affected the murabahah underwritten notes issuance facility/Islamic medium-term notes facility (2005/2012). The debt notes facility is currently rated BBB1/P2.
Formis' activities are information, communication and TECHNOLOGY [] (ICT) products and services.
'The negative outlook reflects RAM Ratings' concerns on the group's persistently weak financial performance in recent quarters stemming from the longer- and larger-than-anticipated losses of ISS CONSULTING SOLUTIONS BHD [] (ISS),' it said.
To recap, the accounts of ISS had been consolidated following the group's reverse take-over (RTO) of this subsidiary via the disposal of Formis Holdings Bhd's entire equity in Diversified Gateway Bhd (Diversified Gateway) to ISS, in exchange for ISS shares.
Formis' overall performance during the nine-months ended Dec 31, 2010 had been below expectations, with an operating loss and a narrower pre-tax profit. Nevertheless, its pre-tax performance in 1Q Oct FY 2011 was boosted by a RM9.2 million gain on dilution of equity interest in Diversified Gateway. Adjusting for this, the group would have incurred a pre-tax loss.
Although Formis' core businesses have remained relatively stable, ISS's contributions from SAP-related products have been meagre. Furthermore, the group's operating loss had been caused by hefty ISS-related expenses such as administration, professional and consultant fees as well as additional allowances for doubtful debts.
Despite the operating losses, Formis still has a healthy balance sheet and a strong liquidity profile. The group's debt level eased from RM69.52 million as at end-December 2009 to RM59.69 million as at end-December 2010. Backed by its enlarged shareholders' funds (following the RTO of ISS), its gearing ratio improved to 0.25 times while retaining its net-cash position.
'Looking ahead, RAM Ratings expects Formis' performance to remain weak, with ISS likely to stay in the red for another few quarters. Although the latter is focusing on delivery of secured contracts, it has thus far been slow in clinching new jobs,' it said.
The ratings could face downward pressure should Formis' performance deteriorate further, vis-''-vis ISS' inability to procure new contracts and continues to be loss-making. On the other hand, the rating outlook may be revised to stable if Formis is able to improve its operating performance as well as ISS's business prospects.
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